I don't honestly think that ATI drivers have anything to do with it... I'm experiencing the same problems...
Before update, everything was OK.
These are just a few things from the errorlog:
<src/client/psclientdr.cpp:196 HandleDeadReckon> Got DR message for unknown entity 1258.
<src/common/paws/pawstexturemanager.cpp:380 CreateTexture> Could not open image: >/paws/base/maps/leather/top_left_1.png<
<src/common/paws/pawstexturemanager.cpp:380 CreateTexture> Could not open image: >/paws/base/maps/leather/top_right_1.png<
There are many many more outputs like this, but they are mostly in the same manner, so I won't copy them all.
I guess the updater messed something up with these leather armor items and other stuff.
Hope you find the solution

Oh, and I tried reinstalling it.
p.s.: It's fun having no torso
